Even during my bleakest financial periods, I was able to make payments to my creditors on time. Not everyone is so fortunate. Some people give up and eventually lose track of where they owe money. Nick wrote last week wondering what to do when you’re done running and ready to take responsibility for your debts:
I’ve made some bad choices financially in the past, and now I know that I owe companies money, but I’m not sure who or how much. How do I go about finding out so I can begin to pay them off and get out of debt?
Nick should start by requesting a copy of his free credit report from AnnualCreditReport.com, an official government-endorsed site from the credit bureaus. His credit report will list the name and contact information for each company to which he owes money. It will also note approximately how much he owes and how far behind on payments he is.
Next, Nick should call each company to verify the amount owed and to explain his situation. This will probably feel awkward at first, but it needs to be done. He must be armed with accurate information. (Update: Commenters suggest contacting creditors one at a time, starting with the smallest debt. “Wake them up” slowly.) As Nick begins to repay his debt, he has a couple of choices.
- He can seek help from a consumer credit counseling service. In the Get Rich Slowly discussion forum, Daisy provided an account of her positive experience with credit counseling. She notes, however, that some people have bad experiences. For a more extensive discussion, check out this old Ask Metafilter thread.
- He can do it himself. It is possible to get out of debt on your own — I’ve done it, and so have many others — but it takes hard work and discipline. I urge Nick to consider Dave Ramsey’s debt snowball method. Focus on paying the smallest bill first, and then move on to the next smallest. Eliminate small debts quickly. This isn’t mathematically ideal, but it will provide a psychological boost, and that’s probably more important in this case.
The U.S. Federal Trade Commission warns that there are a lot of scammers ready to prey on people with poor credit histories. They make false promises while taking money from you that might have been used to pay down debts. Beware of offers that seem too good to be true. The FTC says that self help may be best, and they give tips on how to approach creditors.
Though I struggled to overcome massive debt, I’ve never actually been in Nick’s shoes before. Have you? How did you locate your creditors? How did you contact them? Were they willing to work with you? Did you get outside help? Have you used a consumer credit counseling agency? What advice can you offer Nick as he prepares to confront his debt?
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When people call in to Dave’s show to ask about old debts, he always suggests that they not “wake up” all their old debts at the same time. He suggests that they call them one at a time (smallest first) and suggest a settlement plan (you know, something like 50 cents on the dollar for total settlement of the debt). Pay that one off, then call to “wake up” the next debt. Something to consider…
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Just a quick tip to those folks who really want to work the Free Credit Report benefit. Get your TransUnion report. Wait 4 months. Get your Experion report. Wait 4 months.
Get your Equifax report. Wait 4 months.
Start as above, again.
This way you get to see all three during the course of a year, and can make sure they are factually correct and any action you are taking toward paying off creditors and debt is being reflected.
Hey, it’s free, so why not?
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I second Jessica’s comment. Call these guys one by one and work out a deal (if possible). The last thing you need is a slew of creditors breathing down your neck, and they will as soon as you start contacting them.
I’ve never been on Nick’s end of this situation, but I did some light collections duty for a 3rd party call center and I can tell you that once you start calling these folks and updating information, etc. the others will get around to finding you (if the amounts are significant). Skip tracing is a service most creditors engage in where your information is shared with other creditors in an attempt to collect a debt. Bank 1 can call Bank 2 and ask to verify your contact information, and if you just updated your info with Bank 1 now two creditors have it. This all moves slower than I make it sound in writing, but you get the idea.
I admire Nick for facing his debts and wanting to make things right, financially. Many people would continue to run, but he is definitely doing the right thing.
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I’ve never heard the concept of “waking up” old debts one at a time. It makes sense, though.
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Also, be careful with really old debt (legally uncollectible, beyond the statute of limitations – google zombie debt) if you start paying on it or agree to pay on it you might revive it. Also, if you reach agreements with creditors, I’ll pay you $500 on this $1000 debt get it in writing before you pay it. Also, don’t give them any account information.
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I agree with Jessica do not call each and every one of your creditors. Wait until you have the funds to negotiate with them. In the meantime do not “wake up” all of them.
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Nick should be commended for wanting to take responsibility for his debts. I agree with Jessica with one small addition. If Nick has aggressive creditors breathing down his neck he should start with these. These are the ones driving up his stress level and most likely to actually take him to court. He needs to contact them (not the other way around) and tell them his situation. He needs to have a plan and stand firm. They will push for aggressive repayment, and he needs to ignore their threats and pressure and stick to his guns. Make it clear that if they continue to push they go to the back of the line. Contact them regularly with updates so they don’t need to call you.
He needs to stay away from debt consolidators and counselors. They are scams. The only way to get debt free is to take responsibility, get educated, develop a payment plan, and have the willpower to stick to it. The best source of education is the library. Go and get books by Dave Ramsey, Suze Orman, and other experts.
And of course read this blog!
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Also, stay off the phone…conduct as much of your business with your creditors as possible in writing. That way, if it ever comes down to going to court, you have a paper trail to support you. (More about that further down) Send all payments registered mail, return receipt requested. Generally, if the creditors see that you are educated about debt collection and taking steps to protect yourself, they won’t try to jerk you around too much. (Provided you are also keeping up your end of the new payment arrangements.)
Finally, though I sincerely hope Nick’s situation turns out well and no court appearances will be in his future, here’s one more thing I learned – Most judges/courts are NOT well versed in the FDCPA and other rules regarding debt collection. And most reputable lawyers are not interested in representing “deadbeats”. Even if the law is 100% on your side, take the steps necessary to avoid letting it get that far.
Good luck, Nick!
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And they don’t, which is why you can be derelict on a $20 credit card balance and find that every month they’ve charged you interest, plus a $20 late fee. The following month they charge you interest on your balance, which now includes the late fee. If that eventually pushes you over your limit they’ll start tacking on an over-limit fee. Some quick googling around will find you reports on the fact that fees are one of the largest growing profit areas for lenders. There’s no point in being angry about this any more than condemning the tide for coming in. It’s how they maximize their profit, regardless of how unfair it might feel. But I would suggest that it’s only reasonable for you to endeavor to pay as little as possible, just as they endeavor to get as much as possible. Doing that before spending a dime is fraudulent and sleazy, but when you’re trying to get your life back together it’s just the best approach. And, sometimes, the only approach.
So, the most personally advantageous thing that Nick can do is to get his credit report and look to see who is REPORTING that he owes a debt. I emphasize that because although the credit industry would like you to look upon your credit report as being one and the same as your obligations, it’s not. The law states that any creditor who reports a debt do so accurately and respond to complaints in a certain way. The law does NOT obligate them to report, and this should be obvious to anyone who has ever lent a friend $20. You didn’t have to send a status to Experian, did you?
So it’s possible for someone like Nick with old debt to owe someone money and not have it show any signs on his credit report. He might owe XYZ corporation $100, but when they decided they weren’t ever going to be able to make him pay they sold the debt to PDQ Corporation for $5. PDQ has the right to attempt to collect the full $100, and if they do they realize a $95 profit.
Depending on how old Nick’s debt is, it could all be owned by what are called “junk debt buyers” or perhaps none of it is. But these are the people most often “woken up” when payoffs start happening – they monitor credit reports for changes like payoffs. One of their biggest avenues for collection in the last decade has been holding up people from getting mortgages.
Depending on where Nick lives he might be past the statute of limitations on collections. That doesn’t mean the JDBs won’t ask for the money – in most states they still can – but if they attempt to sue the SOL is a bulletproof AFFIRMATIVE DEFENSE. Meaning that it’s not automatic, it has to be raised by the defendant. However it’s not in the JDB’s interest to file a lawsuit they’ll lose, so they’ll attempt to connive and bully the debtor into paying anyway.
And if they successfully get the debtor to make some payments that usually is enough to reset the date on the statute of limitations. Meaning it might have been twenty years since they debt went unpaid, but if Nick sends them $20 – the “good faith” payment they are always trying to get out of people who are behind in their payments – then suddenly it’s a brand-new debt and Nick can no longer raise that defense in court.
Be careful, Nick. Making good on your debts is the right thing to do, but the law makes it possible for creditors to turn a $1000 debt into ten times that using fees and putative interest rates, and there’s nothing morally defensible in turning someone into an indentured servant. Many of these debt collectors and buyers use sleazy tactics and you need to protect yourself.
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Just a quick reminder that not all debt gets reported to the credit bureau. Reviewing your credit reports, as advised in the post, IS the best way to get an initial handle on what you owe. Once you start cleaning up your credit and old debts, creditors will find you – even the ones not listed on your credit report.
I urge anyone in this situation to fully understand your rights regarding debt and creditors, know the statue of limitations in your state, and verify all debts on your credit report (one at a time as suggested.)
A great resource for rebuilding your credit and understanding your rights are the message boards at myfico.com.
Good luck.
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I helped pay off an old boyfriend’s very old debt (IRS fines and over 10 credit cards and store cards that all had missed payments and, consequently exorbitant interest rates–with some already in collections). He was overwhelmed and just couldn’t face it. Then, he decided he wanted to become a police officer. Suddenly, it was paramount to get rid of all that debt to even be considered for a position with any police department–especially the IRS fines!
We knew who his creditors were, but we needed to clarify exactly how much he owed to each one. So that was step No. 1. Then, we focused on getting rid of the debt most damaging to his future, the IRS fines. After that, we slowly paid a little to each of the other creditors every month until they were all finally paid off. Where did the extra money come from? We played a lot of musical chairs with my own credit card balances whenever I got accepted for new low-introductory-rate balance transfer offers so I could pay down his debts first while letting my own lower-interest ones pile up by paying only the monthly minimums on mine. But, you need a friend or family member with good credit willing to do that for you for this strategy to work.
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This is an interesting question. How do I find out who my creditors are?? If you owe them money they will find you. For sure
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Don make some very good points.
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I recently learned that my ex-husband has a 10-year-old credit card still with my name on it. He’s racked up thousands in debt in my name, and is now considering bankruptcy. It is SOO important to keep track of what your debt is, even if you’re not in this man’s situation!
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Just a few more tips. If, when you’re calling these companies you owe debts to, and they have sent them to collections, find out if they SOLD THE DEBT or if they farmed it out to an ATTORNEY. This will determine how much you should offer on a settlement. An attorney will NOT settle for a piddly sum like 50 cents on the dollar (unless the company they represent is offering a promotion). Think about it, why would you accept 50 cents on the dollar when you can file suit and obtain judgment for the FULL AMOUNT plus statutory interest? Attorneys have MUCH MORE LEVERAGE to collect on a debt, and you should treat them as such.
Of course, this means the converse is true; take lower offers to debt buyers because that’s probably more than what they bought the debt, and they probably bought it with no recourse.
Finally, do not use a debt consolidation company if creditors are filing suit against you. They are not designed to handle legal situations. Most debt consolidators take your money in order to act as a buffer between you and the collector. This acts more as a DELAY TACTIC than a method to actually pay your debts. What most of them do is take your money, take out their fees, and stockpile it, waiting for a settlement offer. You can do the same thing without the fees part yourself. Also, read your contract; some say that any money you put in your trust account to wait for that settlement will be turned into fees and lost if you ever leave the program. So then you end up with a judgment against you stating you owe the full balance, a company that stole all your money, and bankruptcy looking you in the eye. Not pretty.
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Don’s response was invaluable. Also, you can visit http://www.creditboards.com. Those folks have cleaning up your credit down to an art.
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I had a run in with someone who tried to scam me on a credit counseling deal. It sounded legitimate. I tried to look up the company online to see what they were offering. The website looked pretty sketchy. I looked into it further and found blogs of people who had done the same thing as me. I would go with a trusted financial advisor or consulting firm that someone you know has used and approved of. This way it will save you the hassle of having problems down the road.
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